Rauner used pension funds in attempt to escape nursing home liability

By DOUG IBENDAHL • October 28, 2014


Court documents reveal that Bruce Rauner personally authorized a transaction which appears to have involved the flushing away of state pension money as part of a plan designed to allow Rauner and his fellow GTCR principals to escape liability in nursing home lawsuits.


On September 22 a long awaited civil trial commenced in U.S. Bankruptcy Court in Tampa Florida in a case the Federal Judge himself has described as having “all the makings of a legal thriller.”


We first reported on this case long before the March Primary and we’ve had several updates since.


The plaintiffs include the estates of six elderly victims who suffered abuse and neglect while residents in nursing homes controlled by Trans Healthcare, Inc. (“THI”). The Rauner-chaired GTCR acquired THI in 1998 and made the company its vehicle for rapidly buying-up over two-hundred nursing homes around the country. Multiple GTCR entities and funds are named defendants. Edgar D. (“Ned”) Jannotta, Jr., formerly one of Rauner’s fellow GTCR principals, and now one of the largest contributors to Rauner’s gubernatorial campaign, is also named as a defendant in his individual capacity.


The plaintiff estates already won huge judgments in state court in separate trials. They’re in U.S. Bankruptcy Court now because years have gone by and none of the victims have seen a penny of the awards to which they are lawfully entitled by court order. The plaintiffs are now in federal court because they claim Rauner’s GTCR and others engaged in massive fraud in violation of the bankruptcy laws – a deliberate scheme intended to hide assets and thus prevent the victims from receiving any compensation.


The trial in Tampa is still ongoing. There were two-full weeks of testimony, and then the parties were back in court on October 27. They are scheduled to go back again on November 5.


On the first day of the trial, September 22, the Rauner campaign issued talking points in an attempt to deflect from the disturbing claims being tried in Tampa.


Here’s one of the big things Rauner’s camp tried to hang its hat on, a statement copied from GTCR’s opening statement in the ongoing civil fraud trial:


“GTCR Invested A Fresh $20 Million Into THI As Part Of The 2006 Restructuring.”


That statement may be literally true. But here is what Rauner neglected to mention.


The bulk of that $20 million came from a GTCR fund comprised in material part of retirement savings entrusted to GTCR by the Illinois State Board of Investment, which has fiduciary responsibility for the pension assets of the General Assembly Retirement System, the Judges’ Retirement System of Illinois, and the State Employees’ Retirement System of Illinois.


The specific fund is GTCR Fund VI, LP – one of the funds specifically named as a defendant in the ongoing civil fraud trial in Tampa.


Documents filed as part of that litigation trace GTCR’s actions.


First, note that on January 26, 2006, the identical 3-member board of both THI and Trans Health Management, Inc. unanimously passed a resolution deciding to seek Chapter 11 bankruptcy protection for both companies.


One of three directors approving that decision was also then-serving as one of Rauner’s fellow principals at GTCR – Ned Jannotta. (also a named defendant in the Tampa litigation). The other two directors were also executives of THI, and were installed by GTCR.


After making the decision in January 2006 to put the companies into bankruptcy, GTCR and others – including Bruce Rauner personally – then entered into a Release Agreement with General Electric Capital Corporation (“GE Capital”) two months later. GE Capital was one two primary lenders to THI’s nursing home operation.


The Release Agreement was part of some complicated maneuverings during the time in which GTCR was trying to get out of the nursing home business once and for all, as court judgments against THI and its affiliates continued to mount. (The stripped skeleton – or at least the liabilities – of THI would somehow eventually find themselves dumped on a visibly confused elderly man named Barry Saacks who testified via video during the first week of the Tampa trial that he thought he was only getting some computer equipment. In a sad irony, Mr. Saacks is now himself in a nursing home.)


In exchange for GTCR agreeing to put up that $20 million and other actions, GE Capital agreed to release the GTCR parties – including Rauner personally – from certain (but not all) claims.


Bruce Rauner, in his personal capacity, is one of the signatories to the Release Agreement in March of 2006.


Exhibit E of the Release Agreement specified how GTCR would fund the $20 million infusion:


GTCR Fund VI, LP – $19,813,100.00

GTCR VI Executive Fund, LP – $142,040.00

GTCR Associates VI – $44,860.00


In other words, when Rauner has repeatedly claimed that his firm GTCR lost its $20 million dollar “investment,” he simply hasn’t been honest.


In fact, Rauner and his GTCR chums threw $20 million after a company they had just thrown into bankruptcy.


The sometimes frugal Rauner would likely be more cautious with his own money. But of course it wasn’t really GTCR money. Instead, at least a material portion of that $20 million dollars came from the retirement savings of hard working people.


This all looks terrible, but is it unlawful? It actually might be. We won’t know until the litigation is finished in Tampa and the Federal Judge rules in that bench trial.


This matter ties in directly to the fantastic article in Forbes yesterday about Rauner and the incredible conflicts of interest inherent in the private equity pension business.


We also see another glaring reason why Rauner still refuses to release any of his tax schedules.


This is also another example where Rauner decided his need to win trumped your right to know.


Doug Ibendahl is a Chicago Attorney and a former General Counsel of the Illinois Republican Party.


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